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Mistakes made by clients selling their businesses
1. A ‘crisis’ sale
Sales may take place after (say) ill health or death of a senior member of the business, or due to financial difficulties. A prudent buyer will find out about this. A prudent seller can’t avoid ill health, death or financial worries but by planning ahead they can avoid the ‘crisis’ sale.
2. Little interest
If the business has been for sale for a long time, there’s a reason. What is it? It can, for example, be very hard for a seller to be objective about what their business is really worth.
3. The Seller is ‘entrenched’ in the business
One acid test, especially for the smaller business; can the seller takes a two week holiday, starting tomorrow? If he can’t, how would a buyer manage? The owner may have to remain for an extended transition period; if they’re ‘entrenched’ at the time of the sale, it may be unavoidable. A preferred option may be to address the issue now, and start delegating to those who will stay with the business.
4. Ruling out buyers
There is an entirely understandable resistance to disclosing the innards of your business to a competitor. However, they may be the best candidates for a successful sale. With appropriate protection in place, the risk is minimised.
5. Price expectations too high
The acceptable price range should, usually, be agreed before the sales process even begins. When acting for a buyer, any significant issues found during the due diligence process often means an attack on the price – or worse.
6. Too quick to agree
It may be the buyer choosing the business, but the seller is also choosing the buyer. It depends on the market, but in one where there should be considerable interest, it may be unwise to agree with a particular buyer too early.
7. A ‘bad buyer’
How is the buyer financing this? Are they a competitor? Do they have ulterior motives? This can (and should) be clarified early in the process. The sooner a ‘bad’ buyer is identified, the better.
8. Plan A: sale. Plan B: none.
Sales can fail at any point prior to completion, and for any number of reasons. A seller should be ready for this.
9. Unjustified forecasts
The sales process is one that takes time to complete and any buyer wants to know how the business is likely to perform if they buy. Forecasts are a source of problems; a buyer who queries them may be told to rely on their own decisions-which may paint a very different picture.
10. The most common business sales mistake
The overriding mistake we see when sales have run in to difficulty; a lack of preparation. Sadly, most of the common mistakes we see (and, indeed, all of those outlined earlier in this article) can be avoided.
One simple approach; take a look at the business and actively look for problems from the point of view of a potential buyer. That is, after all, precisely what we’ll be doing when we’re acting for a purchaser.
Robert Everrett is a solicitor and head of the company commercial department at Premier Solicitors. He has concentrated on business sales and purchases since qualifying in 1998.
If you have a client selling a business and you need support with any of the legal aspects get in touch confidentially by emailing me or calling me on 01234 802 395.
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